NowVertical Group Inc

XTSX:NOW

Earnings Call Transcript

[Glen Nelson, executive]

[indiscernible] webinar. I'm Glen Nelson, Vice President, Investor Relations and Communications. And with us today, we have Daren Trousdell, Chairman and CEO of NowVertical. The webinar today will begin with opening comments from Daren and a recent company developments and results, after Daren's prepared remarks, we'll take some questions from you. I'd like to also remind you that our remarks today will include some forward-looking statements and are subject to important risks and uncertainties. They may refer to certain non-GAAP or segment measures such as adjusted revenue, pro forma adjusted revenue and adjusted EBITDA. These measures do not have any standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented by other come. For more information on those, please look at our reports, we filed on SEDAR. So, to remind you that a replay of the webinar will be available on our website later today. And with that, I will turn it over to Daren.

[Daren Trousdell, executive]

Good morning, everyone, and thank you for coming to our webinar. I'm very excited to spend time with everyone today sharing our results from our Q3 that we posted last night. Very, very exciting to see the momentum continue still feels like the earliest days for fitting to our story. So today, I'm going to spend a little time sharing this information and answer a few questions at the end, and we'll go from there. So just kind of for everyone's benefit. NowVertical Group, Stocks [indiscernible] now on the TSXV. We are a vertical intelligent software and solutions company that's growing our business or building our business through both organic and inorganic means through targeted acquisitions. Our company is comprised of a network of big data AI technologies led by industry experts. We provide solutions for our customers that are organized by industry that help our customers reveal, secure and mobilize their data. And that in the delivery sense, covers data governance, data security, process automation and predictive and prescriptive data analytics. Ultimately, what we're doing is helping our C-suite customers and government official customers across seven core verticals focus on what matters. And that includes eradicating their risk with their data, removing roadblocks so that they can become more efficient as organizations and ultimately cutting costs. And in this macro environment is a very important part of the process, and we are helping customers accomplish all three with our solutions, ultimately, in an effort so they can have the confidence to make bold decisions that are data backed. We've had an incredible run in a very, very short amount of time. We went public July 5, 2021. We've acquired nine companies, built seven core verticals that we focus on. There are now 200-plus customers. Our pro forma TTM revenue is 33 million from very little only over a year ago. So, we're moving rapidly on the revenue side of things. The company is now 350-plus people globally. So, we are building something that is at scale, that has meaning in the marketplace that are solving real customer problems that help us stay resilient in any macro environment. We serve some of the best customers on Earth in our core 7 verticals in government, that includes U.S. government customers like the Department of Defense, Department of Energy, in media, we cover Universal Music, Twitter, Netflix, Amazon Prime, Energy, Suncor Energy, Chevron and in Financial Services, great clients like Lloyds Bank, First National Bank of South Africa and in other part of the Enterprise Sphere, Disney, Palo Alto Networks, Adobe and many more. We have fantastic momentum happening right now on the financial side of our business. Going 800% revenue growth from the comparable period a year ago, we delivered adjusted revenue of $8.5 million in the quarter, even from the previous quarter of $7.7 million, we are rapidly starting to scale our business up on the revenue front. What's really exciting for us and something we're extremely proud to share is our Q3 had a small adjusted EBITDA loss close to neutral. Our Q4, we are working hard to deliver a positive adjusted EBITDA -- positive adjusted EBITDA for our group into '23, making this a positive adjusted EBITDA story is very, very important to what we're doing in our financial profile. So, we are on the doorstep of this now after a lot of work, a lot of the factors coming together, integrating acquisitions, we're finally being able to showcase those in our financials, and we're really excited about that. Ultimately, these acquisitions, when you stack them up through the time that we acquired them, in aggregate, are giving us much more than 10x plus annual growth. We think there is going to be significant growth to continue even in a tough economic climate, we see baseline growth around 20% for our group, even on an individual unit basis, which is going to aggregate into a nice kind of growth picture. When other companies are going to struggle to grow, we are still going to have growth, which we're excited about. And we're going to exit the year at a $40 million pro forma U.S. run rate from very little, like I said a year ago. So, the revenue is starting to get to a point where the business has real scale potential. We have not come off of our ultimate goal. We have a goal of getting to $100 million top line. So, we have additional acquisitions in flight, work we're always doing on the M&A front. We've shared previously that we have three LOIs underway. So, we're working hard to close those in this quarter. That will help bring our revenue closer to $100 million and then additional M&A plus the organic growth will get us there, we believe, as soon as early Q1. So that's what we're ultimately working on. That's the goal. From there, we will share new goals and new guidance with everybody at that point once we get to this first (indiscernible], which in our 20-plus just over 20-month total history, it is going to be a significant achievement for us to get to that level of revenue scale at the size of company we are and as fast as we're moving. So, all in all, excellent quarter, very proud of our team, proud of our partners, proud of our customers, proud of our shareholders, 800% plus growth from a comparable period. Our gross profit is growing in totality, and we're now on the doorstep of positive adjusted EBITDA, which will transform our story for the long term, we believe. So, some catalysts to look forward to just to recap, more M&A, organic growth within our group, which will include baseline 20% and cross-selling opportunities between our units now that we'll be talking a lot about next year. And then we're also -- we have some other projects on the way, whether it be U.S. better access for people to buy our stock in the U.S. and some other work we're doing in the capital markets front on uplifting the company next year at some point that would make sense for us to expand the story and make it more accessible to a larger pool of investors and shareholders. So that's the -- that concludes the presentation. From there, I think we should answer some questions, Glen.

[Glen Nelson, executive]

Yes. Thank you, Daren. You can find the Q&A button on the bottom banner of your [indiscernible] window here. Feel free to ask a question, and we'll get to answer. Okay. So, we have a question here from Rob Goff at Echelon. Can you please talk about the progress that you're having with your integration?

[Daren Trousdell, executive]

So, we're doing very well on our integration a few projects that we've been delivering through the year that now are becoming a big part of our overall M&A playbook. One is back-office systems. First thing that we are implementing for our group. We have procured NetSuite for our company, which is our kind of back-office accounting system. We are putting that suite into all of our operating units. That helps with speed and timely reporting that we can aggregate and consolidate our financials every month. So that's a really big kind of first step from there banking and other back-office steps so that we can ensure that we can leverage any of our operating unit cash, bring the parent, et cetera. So those functions help kind of give us visibility, reporting and control of our operating units. From there, we look at any overlapping kind of roles or overlapping costs, so we're looking to find synergies there. So, we do a lot of work there. We've been doing stuff to improve the margin profile, and that's a big opportunity for us to optimize our margins that will continue. And then the next big project for us on integration that you'll see is brand. We want to rally and go to market around the now brand. So, you're going to see our operating units start to map quickly to the now brand versus their historical in-market brands. So those are the core projects on M&A.

[Glen Nelson, executive]

This question is from Hernan Gomez. Can expand on the type of measures that Now is taking to improve on profitabilities?

[Daren Trousdell, executive]

So, like I just mentioned on the first thing first on gross margins, improving the cost on our service delivery, which lives in our cost of goods sold in the service side, solutions side of our business. Our software business has very strong gross margins, around 75% to 80% roughly, give or take. So, we're really working to optimize our solutions delivery margins. So next year, you'll see those improve. We really would like to see this get to the 50% gross margin in aggregate for the group. So obviously, the more software assets we add that helps with that and the better we optimize our cost of goods sold on the service side, it will help with that. So those are active projects now that you'll see those improve over time.

[Glen Nelson, executive]

Next question is from Gia Sanchez Lyon. Can you give us some color about the CFO transition?

[Daren Trousdell, executive]

Yes. So Alim Virani was brought in in an operational concept in the finance department working with Terry. As we put in the press release, as we've kind of shared publicly, we're building a purpose-built team of people that essentially been there, done that. And Alim comes from our -- in the Canadian market, the best public company success story I've seen personally, which is Constellation software, and that's been built in a very similar way to us. With a rigid acquisition, M&A inorganic playbook and will at Constellation, Alim within an operating group, also a portfolio manager, in the finance side, brings a capability that we need in here as we accelerate the pace of our M&A and work to get the integration path even more efficient than it is today. So, we felt that Alim is a strong leader, a strong operator. And Terry and Alim together have really built a world-class finance operation in a short amount of time. And Terry, handing the rings to Ali is just a natural progression. And we want to do -- we want to make our transitions now because next year is going to be in the seemly busy as what we have going on.

[Glen Nelson, executive]

Right, can discussed the progress we're making on the backlog.

[Daren Trousdell, executive]

So, the backlog has hovered around 70-ish million in our government business. We've increased that with the recent win with Department of Energy. Line of sight to 80 now, so we're growing that slowly, but surely, there's some bids in flight now in our government business that are going to give us the potential to get that to $100 million in short order, I think, in a quarter if we could win those awards. So, our happy place in the short term, call it, next two quarters, three quarters is to get that backlog close to $100 million in that backlog for everyone's understanding, is the way that, that part of our business works, it's guaranteed contracts that are multiyear that have a value that we deliver against whatever the parameters are in the contract. So, in the case of our current backlog, that's getting close to that high 70 million, 80 million mark roughly, is over a three-year period. So, it's very durable, consistent revenue in the faster and bigger we grow it, the more durable, the overall revenue picture becomes for our group.

[Glen Nelson, executive]

Now I guess one that's asked a couple of times here. How are you viewing economic headwinds? Or how are they affecting company going forward?

[Daren Trousdell, executive]

Nobody in any industry is immune from the macroeconomic picture, it's not pretty out here. It's commercially from the public markets, private markets, they have a lot of contraction happening right now, a lot of decision-making. We're in a unique position with the Now business. And I like to look at it, there's mission-critical technology and service, and then there's discretionary technology and service. Discretionary technology and service could be an e-mail platform, things that you don't have to have to stay compliant or avoid fines or avoid efficient delivery of service in your company and our customers as the world gets more challenged, as they are reducing workforce, they need our product and service more than ever because they can become more efficient and cut costs and some context with that, just our privacy product, which is ultimately helping our customers understand their data state is helping to reduce overall data storage costs for our customers when and what's remarkable, over 60% of our customers' data we're finding is redundant, waste, data waste that is costing them tons and tons of money. So just doing these small exercises with our software products are helping us to create really significant savings for our customers. So, we think our message is resonating well in tough economic times, and we resonate well in [indiscernible].

[Glen Nelson, executive]

Next question from Gabrielle Lyon. And I think you've got a little color on this already, but can you provide some insights around the current pipeline of opportunities, both within the Technology and Solutions group? And are you able to quantify some of the larger opportunities and time lines around the potential close of one of these larger deals?

[Daren Trousdell, executive]

Yes. So, there's two pipelines we run ultimately. We have an M&A pipeline of new companies that we acquire and look to acquire. And that pipeline always in a general sense, is sitting $200 million to $400 million of revenue opportunity in flight right now and we've shared this in previous presentations. There are three acquisitions that we are close to closing on that would represent roughly 30 million, 32 million of revenue -- profitable revenue that we would add to our pro forma USD 40 million that would help us exit the year around 70 million. Those are in-flight, close, used big things we're getting close on. So, stay tuned on those. On the commercial front, we have a very fertile active pipeline. That's driven by a couple of things. One, we have a very strong external sales channel network that is run by Doug Grumman in our company, who is building a global capability of resellers, partner networks that are out there reselling our products, mostly the software side of our business. So, we're seeing a lot of activity come through there, especially on our privacy product, and Affinia product that are easier to integrate as a starting point also with the cost-saving message. So, we're seeing an abundance of opportunity there. On our solutions business, -- we are -- we're hitting it out of the park. In Latin America, we keep announcing new customer wins. We just announced an Aeromexico contract. We just keep winning in that market. In the U.K., we keep winning in U.S. and Canada, we keep winning. And we're very bullish on our ability to continue to drive the commercial engine in our group organically, not just inorganically. And the third part of this, next year, we are going to find a way to share the synergy benefit now. And the real thesis here is a customer. So, if you take one customer, we have that's using our privacy products, to take a Lloyds Bank uses our privacy product. That's all they're using right now. The opportunity is ultimately to unlock other opportunities in the customers we already have. That will drive our baseline 20% growth much higher. And that's what we're figuring out for next year, and we really think the organic story is going to be as exciting as the inorganic story.

[Glen Nelson, executive]

Right, kind of follow up to that we, can you discuss the organic growth parameters and how we're kind of looking at organic growth.

[Daren Trousdell, executive]

Yes. As I just stated, 20% baseline. If we can get the synergies working to what our expectations are, it will be substantially higher than that.

[Glen Nelson, executive]

Then from Jesus [indiscernible]. Given cash position in the interest rate market that out there right now, the share price, how do we -- how are you looking to approach future funding needs to keep the current growth rate?

[Daren Trousdell, executive]

Even at current interest rates, we have previously in the last two acquisitions, use debt strategically and very effectively in our transactions. We currently are still excited about the debt capability even as interest rates are going up a little bit. It's still much, much cheaper than using the market. So, we don't intend to go to market for every acquisition we have. We'll stay opportunistic. We have hopes that the capital markets are going to turn to a much better climate and sooner than later, hopefully. So, we still aren't seeing debt become debt become too cost prohibitive for us yet. It's still very effective. And we're -- you'll see news from us in short order on some of those latest and greatest kind of impacts that we'll see.

[Glen Nelson, executive]

And next one is from Andre Bodo. Just kind of a follow-on to Gabriel's question. Can you speak to the nature of the business in the M&A pipeline, add some color to where you're looking to bring in synergies.

[Daren Trousdell, executive]

So, we've been focused a lot this year, going to the end of this year on our solutions group and getting more capability, obviously, more profitability into our group, positive EBITDA and also geographic coverage. We now have strong -- I mean, extremely strong operations in Latin America that we are looking to expand. We have strong operations in North America, we are looking to expand. We are looking for new markets in Asia and expanding Europe. We've done very well in the U.K. already. So, the geographic coverage is an important point. We are excited about software again because of the macroeconomic environment, we think there are going to be excellent deals to have in great software companies that are still subscale revenue that we can now get into very low single-digit revenue multiples that we can bring into our group and improve their profile and profitability and turn that into a much higher multiple long term. So, you will see us do both types of deals now versus just Solutions Group. And those software companies are going to quickly help us elevate our gross margin profile to our target.

[Glen Nelson, executive]

Right. Well, I think with that, with no further questions, I think we will – we’re clear to wrap up.

[Daren Trousdell, executive]

All right. So, I just wanted to thank everybody for their time, their support the great questions, the constant dialogue I'm having with everybody. I'm having a blast spending time with shareholders sharing the story, helping people understand what we do. Some of the technology side of this is complicated and not as easy to understand is selling a widget. But it's very, very important work we do. I want to thank our team for incredible delivery in their operating units and their customers. I want to thank our customers for trusting us with their most precious asset, which is their data. And I want everyone to kind of stay upbeat and that’s let’s beat the bears and mentality in the market, and let's really push forward in a tough time so that we can all win together. So, thank you, and have a great day.

[Glen Nelson, executive]

Thank you. And just as a reminder, we'll be posting this version of the webinar in to our website in [indiscernible]. Thank you, Daren. A great day, everyone.